Financial Planning & Investment Management

Newsletter

December 1, 2011

Identity Theft: How to Protect Yourself

Few things in life are as simple as they appear. Protecting yourself from identify theft is no different. It would be wonderful if you could just subscribe to a monitoring service or buy insurance and be done with it. Unfortunately, it’s not that easy.

To address this issue, I apply the same approach I use when working with my clients to develop any other insurance or portfolio recommendation. It’s a matter of understanding the risk you are most vulnerable to and implementing the most practical set of solutions — for your situation.

It’s about knowing your risk tolerance. For example, what happens if your identity is stolen? Will life as you know it end or will you merely be inconvenienced?

Gain an Understanding of the Problem

Before jumping to solutions, understand the problem and decide what you want to protect. Determine what you are most at risk for and what you would like to protect yourself against. Reduce your exposure before protecting it.

Privacy Rights Clearinghouse is a comprehensive source for information regarding privacy protection. This website broadened my understanding of the issues surrounding privacy protection and made me aware that it is more than identity theft.

I’m focusing on financial topics here, but you may want to check out other areas of concern, such as workplace and medical records privacy issues.

Take Effective Precautions

You can do a lot to protect your privacy — on your own:

Reduce your exposure.

Close unused and unnecessary accounts. I’m a strong believer that having an orderly financial situation will minimize your exposure to identity theft. And, if it does happen, it will be easier to spot. Sometimes people voice concerns that closing credit accounts and similar behavior will adversely affect their credit scores. Scores may drop in the short run, but you will be better off in the long run. Keep a minimal checking account balance necessary to meet your regular living expenses, while keeping your cash reserve in an account that cannot be accessed electronically through your regular checking account.

Implement opt-out and monitoring strategies.

Fact Sheet 1a: Privacy Basics and Opt-Out Strategies provides a handy list of resources to opt out of unsolicited credit card offers, restrict access to your credit report, etc. Review this list and identify those “to do’s” that are most relevant to your situation. Add them to your financial money meeting that I discussed in my last newsletter.

Don’t give your information away.

Phishing emails are getting more convincing. Check the email headers —you’ll find the sources immediately look suspicious. Companies, the IRS, etc., will not ask for your information over the Internet. But the thieves are getting trickier, so it’s best to check out even familiar solicitations. I received a questionable email from the credit card company that I use. Rather than reply, I called to confirm it was from them. It was, and they were receiving a large number of calls about it. They will be more thoughtful in the future.

Be cautious when dealing with telemarketers.

A friend received a solicitation call from a charity. She declined to send money or provide her credit card number. She did, however, give them her address so they could send her more information.Later that evening, a representative from the charity rang her doorbell.

Don’t leave information in your car.

A friend’s employee badge was stolen from her car. Through a series of mistakes made by her employer, the thief accessed the bank account where her direct payroll deposits were made, withdrawing its balance. She worked with police detectives, and the thief ultimately spent time behind bars. His parole is contingent upon him making restitution payments to her.

Make simple changes.

Sometimes the simplest advice is the most effective. According to some studies, insecure passwords are a significant cause of stolen identities. Check out some sound advice that you may not have considered before. For example, don’t use the same password on a likely to be less secure website — say, where you sign up for a free newsletter — as you do for your online banking. Hackers can get your password from the newsletter site, then they try it on the major banks’ websites. One just might be your bank. Tossing documents with confidential information remains a frequent cause of identity theft. Shred unnecessary documents to protect your identity.

Fact Sheet 17: Coping with Identity Theft: Reducing the Risk of Fraud provides a list of 45 things you can do — pick what makes most sense in your situation.

What You Get Through Monitoring Services

Fact Sheet 33: Identity Theft Monitoring Services is a good summation of the issues surrounding identity theft monitoring services and identity theft insurance. It details what types of identity theft monitoring services protect against and what types they don’t. It also offers advice on low-cost and free alternatives. The biggest problem is unwinding the effects of an identity theft. In my mind, however, the monitoring services do not offer me much more protection than what I can do myself.

What Insurance Will Buy You

Fact Sheet 33 is also a good resource on this topic. The risk of financial loss from identity theft is generally very low. anything to contribute to the loss, it is unlikely that you will have financial responsibility. If you report a loss promptly after discovery and you have not done You may encounter a few costs in documenting your loss, such as postage, notary, and copying costs, but these are likely to be minimal. The biggest cost will be your time, but most policies will not compensate you for this. For this reason, it’s unlikely that you need to purchase identity theft insurance.

You might also want to check to see if you’re already covered by your homeowner’s or renter’s insurance. Or check if your insurer may be able to add coverage for a small annual fee. Don’t bother if the deductible is greater than $500. Your costs are not likely to exceed this amount by much.

In Summary

Monitoring can be done for free. Protection steps are free. Financial exposure is limited by consumer protection legislation. Insurance benefits are minimal. I recommend investing your time in preventive measures that also help get your finances in order, then using the money you save for something more fun.

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